Ed Fuller: Housing Market Recovery Is Structurally Sound

What a rebound! The past two years saw the median single-family home price in the Santa Barbara metro area increase by 39 percent.

Ed Fuller

Along with the stock market, many have been raising concerns that we have entered another housing “bubble.” But there are differences this time.

The biggest one is home mortgage qualifications. The housing boom years of 2004 through 2007 saw loans of as much as 110 percent of a property's value made to borrowers who had little or no income. In the years since the financial meltdown, not only have borrowers needed a down payment, but the amount of their income that can be used to service the mortgage and all their debt has been limited to 50 percent.

On top of this, borrowers have been required to document in detail every aspect of their financial situation. This has led many an industry expert to decry the difficulties of obtaining home financing, but it is this very difficulty that has put the increasing prices of housing on firm footing.

The new crop of owners really can afford their homes, come higher or lower prices. Since nearly every new mortgage has been fixed, and at historically low rates, increasing interest rates will not change the recent owner's payments.

Rapidly increasing adjustable rate mortgages were another contributing factor to the housing meltdown in the last recession. With the new year, a new bread of mortgage has been born, one with even tighter qualifications — the qualified mortgage. This new mortgage will allow only 43 percent of a buyer's income to go toward servicing all their monthly payments, including the new property.

This is significant because because the vast majority of loans purchased in the secondary market will be required to meet these new standards, putting any further increases in home prices on firmer ground.

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